After what it calls “an unacceptable number of repairs to Xbox 360 consoles,” Microsoft has announced an extension to the console's warranty, covering its infamous 'red ring' general hardware failure error for three years past the date of purchase.

Since its debut in 2005, the Xbox 360 has gained a reputation across a number of internet forums and weblogs for hardware failure, and, in a statement issued today, Microsoft officials note that the company has conducted "extensive investigations" into possible causes for problems with the Xbox 360 hardware. As a result, the company has “made improvements to the console and is enhancing its Xbox 360 warranty policy for existing and new customers.”

Xbox 360 owners who experience the “three flashing red lights” error with their Xbox 360 within three years of purchase can have their consoles repaired at no cost. The company adds that as a result of this, it will incur a $1.05 billion to $1.15 billion pre-tax charge to earnings for the quarter ended June 30, 2007 for anticipated costs under its current and enhanced Xbox 360 policies.

Microsoft notes that those who have already paid for such repair charges can expect reimbursement checks for the amount of their console repair.

“The majority of Xbox 360 owners are having a great experience with their console and have from day one. But, this problem has caused frustration for some of our customers and for that, we sincerely apologize,” said Robbie Bach, president of Microsoft’s Entertainment & Devices Division. “We value our community tremendously and look at this as an investment in our customer base. We look forward to great things to come.”

Microsoft corporate vice president Peter Moore has written an open letter to the Xbox community stating that the company has "not been doing a good enough job" at its customer service over the hardware problems.

"Some of you have expressed frustration with the customer experiences you have had with Xbox 360; frustration with having to return your console for service after receiving the general hardware error message on the console," said Moore.

"If we have let any of you down in the experience you have had with your Xbox 360," he added, "we sincerely apologize. We are taking responsibility and are making these changes to ensure that every Xbox 360 owner continues to have a great experience."

[UPDATE: In a call to Microsoft investors, Bach and Microsoft CFO Christopher Liddell explained that despite the $1 billion the company will incur from the new initiative, the overall health of the Xbox business is very strong.

Liddell added that he was "disappointed in the result from a financial perspective," but that in Microsoft's view "customer satisfaction" was the priority, saying that the undertaking would "strengthen the long term health of Xbox business."

Liddell also said that despite the charges, the company was not updating its fiscal 2008 guidance, with Bach responding to a question saying that the September release of "four letters called H A L O" would cushion the financial blow.

Asked when the company first became aware of the issues it says it has resolved, Bach said that for a "little over first year," the "set of issues wasn't visible at all," but during the last couple of months the company has seen "significant increases, significant call volume, and significant attention" to the problem.

While Bach was unwilling to talk specific numbers of consoles repaired or return rates, he said that "with a billion dollar charge... it's a meaningful number -- one that we take very seriously, and one that clearly has our attention."

The company was also quick to add that the issue was something that should be seen as "Microsoft's responsibility," and that the company's manufacturing partners have "done good work," but the problems arose from a "Microsoft design challenge," and are something "the company can now engineer around."

Finally, Liddell added that the new three year policy should be seen as "more of a security blanket, than an expectation on our part" of further failures for new consoles sold from this point on.]